PETALING JAYA: Supermax Corp Bhd’s upcoming 315-acre glove plant in Brazoria County in Texas in the United States will likely be loss-making at the initial stages until certain economies of scale are achieved (all 12 lines commissioned, with over 65% utilisation rate), according to CGS-CIMB Research.
The research unit said on top of higher construction costs (at least 100% more than a similar plant in Malaysia), production cost for a plant in the US would be higher due to higher waste management and labour costs.
Still, CGS-CIMB Research stated it was slightly positive on the upcoming plant, assuming strong execution, no delays in construction works and no cost overruns.
“In addition to potential tax incentives, this plant will bring Supermax’s glove supply nearer to its US-based clients, resulting in lower freight cost and faster delivery time.
“Also, this plant will not likely face the social compliance issues affecting existing facilities in Malaysia,” said the research unit.
Supermax has announced it will start construction of the first phase of the plant by the fourth quarter (Q4) of its financial year ending June 30, 2022 (FY22).
The group expects commercial production by Q4 of FY23.
The US plant will be constructed over four phases with a total output capacity of 4.8 billion pieces per annum each (combined: 19.2 billion pieces per annum, making up 36% of the new capacity to be added by end-FY24).
CGS-CIMB Research noted that Supermax had yet to disclose details such as the commissioning date of each production line in Phase 1, as well as the construction date of Phases 2, 3 and 4; operating details such as tax benefits, and worker count; and selling prices given the operating landscape in the US.
For the first phase of its US plant, Supermax has earmarked a total capital expenditure of US$350mil (RM1.5bil).
According to CGS-CIMB Research, this is inclusive of equipping the plant with cutting-edge capabilities via the expanded use of artificial intelligence (AI) and robotic engineering (lower usage of workers, and better efficiencies).
“We estimate that Supermax will have no issues in funding the first phase of its US plant, given its net cash position as at end-Q2 of FY22.
“We believe the subsequent phases will cost less per phase – we estimate RM500mil to RM600mil per phase,” said the research unit.
According to a report published in March 2022 by US-based Global Industry Analysts, the nitrile glove market in the US will reach US$12.8bil (RM53.82bil) in 2022, and will account for 33.5% of the global market.
According to Supermax, the first phase of its US plant will cater to at least 10% to 15% of the annual medical nitrile glove demand in the US by the next two to four years.
Supermax has guided that construction of Phase 2 will commence soon after Phase 1 is completed, and the combined output of Phases 1 and 2 should meet 20% to 25% of the demand and consumption in the US within the next four to six years.